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How Will the PVC Market Go in Q1, 2020?

SCI99

2020-01-16

How Will the PVC Market Go in Q1, 2020?

Highlights

China’s PVC market prices mounted up at first and then hovered at high levels in Q4, 2019. Near the end of 2019, spot PVC prices declined. In Q1, 2020, the market sentiment of participants will change. The main factors to influence the PVC market in Q1 will be analyzed as follows.

China’s PVC mainstream prices headed down in Q4, 2019. After the National Day holiday, the earlier reaction of market players to the cancellation of anti-dumping duties weighed down the macro environment. The spot and futures prices of PVC decreased slightly. Even if the Sino-U.S. trade relationship improved, the overall economy suffered downside pressure. From October to November, the maintenance of PVC units was intensive. The long-term shutdown of some PVC units and safety inspection caused an obvious increase in PVC output loss. The social inventory of PVC declined rapidly. Especially in November, the PVC supply was short, promoting PVC prices to rise. In December, China’s PVC market prices hovered at high levels but then inched down. Downstream enterprises showed a rigid demand for high-priced PVC resources. The spot PVC market kept firm in December. In H1 December, PVC prices fluctuated marginally at high levels due to the decreasing inventory and short supply. In H2 December, PVC prices fluctuated downwards, amid bearish market sentiment.

After the New Year’s Day holiday, the Spring Festival holiday comes near. How will the PVC market go in Q1, 2020? SCI will make an outlook for you.

The PVC supply will rise slightly, and the downstream demand will weaken gradually, so PVC prices will decrease in January 2020. The main reasons are as follows:

First, more resources will arrive, so the social inventory of PVC will rise slowly. Around January 15, some downstream enterprises will take a holiday, so they will finish the replenishment of feedstock in H1 January. Second, the price spread between spot PVC and the PVC futures continued shrinking. Many market players hold a cautious and bearish stance.

Regarding the PVC market after the Spring Festival holiday, market players hold different attitudes. The main price drivers are as follows.

1. Expectation for inventory accumulation after the Spring Festival holiday

In January, downstream enterprises will take a holiday successively, and their purchase volume of PVC will be limited. The PVC beginning inventory level in 2019 was lower than that in the same period of 2018, so the inventory now is 33kt lower than last year. The inventory will still be accumulated a lot after the Spring Festival holiday. Besides, the units that have been put into use in Q4, 2019 will produce more products in Q1, 2020. Therefore, the social inventory after the Spring Festival holiday will be high.

2. Downstream demand for PVC after the Spring Festival holiday

On the one hand, it is necessary to replenish the inventory after the holiday for downstream enterprises, but their purchase volume will not be huge, as they will have ample spot resources. On the other hand, some downstream enterprises have some inventories of finished products, so their demand for PVC after the holiday will recover slowly. SCI reckons that the demand for PVC will actually recover obviously in March 2020.

Considering that the real estate completion data has improved significantly and boosted the demand for PVC products, the downstream operating rates in March will gradually increase. In 2018 and 2019, East China and South China both experienced a certain degree of difficulty in recruiting workers. Participants are recommended to concern about whether such problems will occur this year.

3. In the first quarter, there will still be some uncertainties.

In 2020, the economy will still face great downward pressure, and the economic growth rate is close to the policy bottom line. If two doubling targets need achieving in 2020, the demand for stable growth will be stronger, and the intensity of counter-cyclical regulation will be greater. Under the requirement of “ensuring that it will be effective at the beginning of the year”, the counter-cyclical regulation will continue to be strengthened, and it may be effective soon. Regulations such as tax and fee reductions, and special debt may be introduced one after another. In the first half of 2020, macroeconomic indicators such as social finance and economic data may improve.

In total, the social inventory of PVC will continue rising step by step in February 2020. Downstream enterprises will purchase based on rigid demand, even if they have demand for building the stock. Therefore, the PVC supply pressure will be high, and PVC prices will inch down compared with the prices before the Spring Festival holiday. In March, the downstream demand will rally gradually. It is worth focusing on the consumption speed of social inventory and the change in macro policy. SCI holds that the overall mainstream price of PVC in March will be higher than that in February.

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